When home prices are stable or falling, home buyers often mischaracterized their downpayment on a home, calling it their “cushion” against falling home prices.

Nothing could be farther from the truth.

Nobody wants to owe money when they sell their home.  In fact, when asked, most people will answer that they just want to “break even” on their sale.

So, if that person later sells their home for $30,000 less than they paid for it plus the cost of improvements, $30,000 is their loss.  If their initial downpayment happened to be $30,000 and they walk away from the closing table “even”, it doesn’t change the fact the home owner lost $30,000 on the sale.

The downpayment is not a cushion — it’s an investment.  And when facing falling prices, it can be a simple game of Pay Now, or Pay Later. 

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One thought on “Why Downpayments Are Investments, Not Cushions

  1. You’re exactly right, Tony.
    Most people have no understanding of investment fundamentals. And even those that do – there are so many emotional and psych issues involved with buying and owning a home.
    It’s been shown a number of times that homes are not good investments – even in the first half of this decade. But what they provide in peace of mind, security, a place to live (kinda important, that one), and groundedness makes them pretty important to all of us.

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